The latest jobs report had its share of shutdown-related quirks, but a familiar theme cut through the noise: The US labor market is stuck in a rut.
Employers are still hiring, but job growth is at one of its weakest paces in the past two decades.
The “low-hire, low-fire” dynamics persisted in November, with an unemployment rate driven higher partly by more people looking for work but not finding it. Long-term unemployment increased, discouraged workers were on the rise, and economic disparities deepened.
“Hiring, while certainly not on a freeze, is on hold; and people that have jobs are absolutely holding on to them with white knuckles,” Dan North, Allianz Trade’s senior economist for North America, told CNN this week. “I see that as definitely a labor market that’s stagnating.”
So where does it go from here? Some economists say this low-gear state can continue for quite some time. But others note that it’s only a matter of time before the labor market sees a major shift — and there are several ways that could happen.
Inertia
Although the labor market has cooled, the overall economy is still growing at a decent clip and productivity hasn’t slipped.
The US economy’s job gains have averaged 55,000 a month, which may be reflective of the “pervasive uncertainty” caused by stark changes in US trade and immigration policy. But the American population is also going through its own transformation, said Joe Brusuelas, RSM US chief economist.
The supply of labor is shrinking as the Baby Boomer generation ages out of the workforce and additional constraints are placed on immigration, he noted.
And there’s been a shift in the “breakeven rate” of employment. Put simply, the economy doesn’t need to create as many jobs as it once did in order to sustain itself.
“My estimate is that we need to hire 50,000 a month to keep the labor market conditions stable,” Brusuelas told CNN. The economy will “grow at around 2%, financial conditions will be OK, and we’ll probably ease off a little bit on the inflation side.”
From an economics or capital markets perspective, that’s a perfectly reasonable outcome and one that “could go on for years,” he said.
However, “the K-shaped economy means that the disproportion of the benefits accrued from prosperity will not be distributed equally,” he added, meaning wealthier households will do better than poorer households as hiring slows.
Further deterioration
A big wild card right now is AI and how much it could reshape employment. In the near term, questions about the technology will continue to make businesses cautious about hiring, Pantheon Macroeconomics economists wrote in a note this week.
“The longer-term implications for labor displacement and wage dynamics, however, remain an open question,” Seema Shah, chief global strategist at Principal Asset Management, wrote in a note Tuesday.
AI — alongside immigration enforcement and broader policy uncertainty — remains a headwind to labor market growth, said Tyler Schipper, associate professor of economics at St. Thomas University in St. Paul, Minnesota.
“The question I ask myself is, ‘What would be the conditions in which I think the labor market would ramp back up?’ and some of those are policy-related,” he said. “I have a hard time seeing those resolving themselves anytime soon.”
“For better or worse, I think we could be in this K-shaped economy for some time,” he added. “And I think the way out of it probably is that there’s a recession before things get better, which is never what you want to hear if you’re on the lower leg of the K.”
Reacceleration
The labor market could see hiring reaccelerate, said Cory Stahle, economist at Indeed Hiring Lab.
It just may take a bit to take hold.
“The US labor market is like a pretty big ship turned by a rudder,” he said. “Sometimes it takes a little time to turn around.”
One force could be the recent interest rate cuts from the Federal Reserve, he said, noting that it typically takes about three to five quarters for monetary policy changes to work their way through the economy.
Another could be policy changes or anything else that eases Americans’ uncertainty, which has drastically stifled hiring this year. Also at play are the impacts of the tax law set to take effect in 2026, RSM’s Brusuelas said.
“There’s uncertainty around what rates are going to do, uncertainty around prices, uncertainty around general policy,” Stahle said. “Unless that fog of uncertainty is broken, we’ll continue to see companies stumbling a little bit through that fog.”